Statement on the Conforming Loan Limit for 2008 and Revised Draft Examination Guidance, 59545-59549 [E7-20743]
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Federal Register / Vol. 72, No. 203 / Monday, October 22, 2007 / Notices
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Dated: October 9, 2007.
Darlene F. Williams,
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[FR Doc. E7–20687 Filed 10–19–07; 8:45 am]
BILLING CODE 4210–67–P
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DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
Office of Federal Housing Enterprise
Oversight
Statement on the Conforming Loan
Limit for 2008 and Revised Draft
Examination Guidance
Office of Federal Housing
Enterprise Oversight, HUD.
ACTION: Notice of availability of
statement and request for comments on
Revised Draft Examination Guidance.
AGENCY:
SUMMARY: The Office of Federal Housing
Enterprise Oversight is publishing today
a Statement on the Conforming Loan
Limit for 2008 and issuing for additional
public comment a revised version of the
Proposed Examination Guidance,
entitled ‘‘Conforming Loan Limit
Calculations’’ (Policy Guidance).
Material in the proposed guidance does
not constitute a regulation.
DATES: Comments on OFHEO’s Revised
Draft Examination Guidance should be
received by November 21, 2007.
ADDRESSES: Send all comments on
OFHEO’s Revised Draft Examination
Guidance to: the Office of Federal
Housing Enterprise Oversight, Fourth
Floor, 1700 G Street, NW., Washington,
DC 20552.
FOR FURTHER INFORMATION CONTACT: If
you have any questions regarding
OFHEO’s Revised Draft Examination
Guidance, you may contact Alfred M.
Pollard, General Counsel, at (202) 414–
3800 (not a toll free number). The
telephone number for the
Telecommunications Device for the Deaf
is: (800) 877–8339 (TDD Only).
SUPPLEMENTARY INFORMATION: OFHEO’s
Revised Draft Examination Guidance is
posted on the Internet at https://
www.ofheo.gov. This document, as well
as all others mentioned in the preamble
can also be accessed on business days
between the hours of 10 a.m. and 3 p.m.,
at the Office of Federal Housing
Enterprise Oversight, Fourth Floor, 1700
G Street, NW., Washington, DC 20552.
To make an appointment to inspect
documents, please call the Office of
General Counsel at (202) 414–6924.
Comments Invited: You may submit
your comments on OFHEO’s Revised
Draft Examination Guidance’’ by any of
the following methods:
• U.S. Mail, United Parcel Post,
Federal Express, or Other Mail Service:
The mailing address for comments is:
Alfred M. Pollard, General Counsel,
Attention: Comments/Revised Draft
Examination Guidance, Office of
Federal Housing Enterprise Oversight,
PO 00000
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59545
Fourth Floor, 1700 G Street, NW.,
Washington, DC 20552.
• Hand Delivery/Courier: The hand
delivery address is: Alfred M. Pollard,
General Counsel, Attention: Comments
‘‘Revised Draft Examination Guidance,’’
Office of Federal Housing Enterprise
Oversight, Fourth Floor, 1700 G Street,
NW., Washington, DC 20552. The
package should be logged at the Guard
Desk, First Floor, on business days
between 9 a.m. and 5 p.m.
• E-mail: The e-mail address is:
RegComments@OFHEO.gov.
• Internet: When accessing
documents online at https://
www.ofheo.gov, comments can be sent
by clicking the link for November 13,
2007.
• Instructions: All submissions of
received comments must include the
reference ‘‘Revised Draft Examination
Guidance’’ in the subject line of the
message. All comments received will be
posted without change to https://
www.ofheo.gov and will include any
personal information provided.
I. Statement on the Conforming Loan
Limit for 2008
On November 15, 2006, OFHEO
announced that any decline in the
house price index used to establish the
conforming loan limit would not result
in a decline in that limit for 2007.
OFHEO also committed at that time to
providing updated guidance on how
future reductions in the house price
index would affect the conforming loan
limit.
On June 20, 2007, OFHEO released on
its Web site for public comment a
proposed revision to its existing
Examination Guidance entitled
‘‘Conforming Loan Limit Calculations’’
(the original proposal). Today, OFHEO
is publishing in the Federal Register for
public comment a revised version of
that proposed guidance (the revised
proposal).
Both the original and revised proposal
provide for holding the conforming loan
limit constant, rather than having it
decline, should the relevant house price
index decline by a de minimis amount.
The $650 decline in the conforming
loan limit implied by last year’s house
price decline falls within the de
minimis range as originally proposed
and as proposed here.
Consistent with this intention of
having a de minimis change exception
to potential reductions in the loan limit,
OFHEO is today affirming that the
current $417,000 conforming loan limit
will not be reduced in 2008, without
regard to any reduction in the relevant
house price index in 2007. Should the
relevant house price index show an
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increase in 2007, the conforming loan
limit will either remain unchanged (if
the increase is less than or equal to last
year’s decline), or increase (if the
increase exceeds last year’s decline,
then that decline will be netted against
this year’s increase). In any event, the
current $417,000 conforming loan limit
will not decline in 2008.
II. Request for Comment on Revised
Examination Guidance, Conforming
Loan Limit Calculations
The Office of Federal Housing
Enterprise Oversight is publishing today
for public comment a revised
Examination Guidance, entitled
Conforming Loan Limit Calculations.
Following comments received on the
original proposal, OFHEO determined to
make certain changes and to provide an
opportunity for public comment on the
revised proposal.
Among other sections addressing
procedures for calculating and
implementing increases and decreases
to the conforming loan limit, the
original guidance proposed in its core
provisions that decreases be deferred
one year and then only taken when they
clear a de minimis amount. In short, the
loan limit decrease that was deferred for
2007 will be deferred an additional year
to 2009 if the underlying house price
series declines again this year, as the
previously deferred decrease was less
than a de minimis amount (three
percent). If the underlying series
increases this year, the decrease will be
subtracted from such increase in
determining the maximum loan limits
for 2008.
OFHEO provided for public comment
on the proposed examination guidance
on OFHEO’s Web site on June 20, 2007,
and at the end of a thirty day comment
period, some 23 comments from 25
organizations (representing over 2
million businesses) and individuals
were received. OFHEO has taken these
comments into consideration and has
made alterations to the guidance.
Central to OFHEO’s consideration was
assuring clarity in the process of
calculating loan limits, providing for
smooth market operations and affording
certainty to those involved in making
and securing mortgages—Fannie Mae
and Freddie Mac, mortgage originators,
and homebuyers.
The proposed guidance elaborated on,
revised and superseded an existing
guidance—Supervisory Guidance
Conforming Loan Limit Calculations,
SG–04–01 (February 20, 2004) that
delineated OFHEO’s role in calculating
and announcing the conforming loan
limit. In 2006, after a decline in housing
price numbers, OFHEO announced that,
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while the conforming loan level had
decreased, the resulting decline in the
limit would be delayed a year. OFHEO
also indicated it would revise and
update the existing guidance and
address how the decline would be
implemented.
Background
Calculations for the conforming loan
limit establish the maximum size of
loans that Fannie Mae and Freddie Mac
may purchase, as provided in their
charters. The conforming loan limit is
adjusted annually through a calculation
of year over year changes to the existing
level of home prices based on data from
the Federal Housing Finance Board’s
Monthly Interest Rate Survey (MIRS).
Congress established the concept of
loan size limit on purchases by Fannie
Mae and Freddie Mac as an integral part
of the creation of their ‘‘mission.’’
Statutory language relating to the
conforming loan limit permits
‘‘adjustments’’ to the conforming loan
limit based on the ‘‘percentage increase’’
of the prior year. The statutes did not
address what would happen in the
event that no increase occurred in the
home price figures or the price figures
declined. In November 2006, OFHEO
acted to address this gap in the statutes,
indicating that a decline or ‘‘negative
increase’’ had occurred in 2006 and
would be taken into account following
a one year deferral. As well, OFHEO
committed to a revision of its existing
guidance to address the process and
procedures involved in calculations and
how decreases would be implemented.
Because of the importance of Fannie
Mae and Freddie Mac and the
conforming loan limit to the mortgage
markets and the interest of other
financial institutions, mortgage bankers,
builders, realtors and others, OFHEO
solicited public comment on the
guidance.
OFHEO sought comment on all
aspects of the guidance, noting certain
key provisions. These were (1)
addressing whether and how existing
conforming loans should be
grandfathered; (2) addressing a number
of procedural matters, including
rounding down announced loan limits
to the nearest $100; and (3) providing
clarity on declines in the conforming
loan limit. As proposed, the decline
would have to represent a greater than
one percent drop in the loan limit
(currently $417,000) or it would be
deferred. Once deferrals reached one
percent, then the total decline would be
subtracted (one year later) from the
conforming loan limit adjusting for any
increase that had occurred. For
example, the one percent threshold and
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one year lag mean that the earliest the
2006 and 2007 conforming loan limit of
$417,000 could be adjusted downward
would be in 2009. That would only
occur if prices continued to decline in
2007 and the cumulative 2006–2007
decline exceeded one percent, even after
netting any 2008 increase.
III. Comments and Changes to the
Conforming Loan Limit Guidance
After a full review of comments,
OFHEO has undertaken a number of
changes and determined to publish a
revised version of the guidance for
additional comment.
1. Loan Limit Declines and Statute
Some comments received agreed with
OFHEO’s determination while others
disagreed. Most comments in opposition
focused on statutory language relating to
adding increases to an existing
conforming loan limit or suggested that
as a matter of policy declines should
never be taken but rather be subtracted
in years when the loan limit increased.
OFHEO determined that declines fit
within the statutory language as
‘‘negative increases.’’ In the alternative,
where statutory language is silent, as is
the case here, regulators routinely fill
gaps in statutes with rational solutions
in line with available statutory intent.
Since loan limit calculations are tied to
annual home price surveys, increases
and declines reasonably may be
considered in line with that statutory
structure. OFHEO has determined that
filling the gap in statutory language is
appropriate and sought to address, in
light of comments, how its proposed
guidance would be implemented.
2. Loan Limit Declines—Deferrals
Comments received suggested that a
deferral period was preferred. Most
commenters, whether they opposed
declines or not, favored an
implementation of declines in the
conforming loan limit with as little
market disruption as possible. OFHEO
agrees that its implementation should
result in the least impact on both market
operations and provide the greatest
certainty for planning in the mortgage
markets.
The revised guidance would
implement the proposed deferral of one
year. This would permit markets well in
advance to know that a decline may be
forthcoming. Further, there will be
certainty about the minimum level for
the coming year.
In line with comments received,
OFHEO has amended the language to
clarify that no loan limit decreases of
less than the de minimis amount will be
required, and that any such amounts
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would be carried forward to the
following year’s determination.
Decreases would be deferred until they
reach a cumulative three percent or
until they are used to offset future
increases, so that ultimately cumulative
percentage changes in the maximum
loan limits would not exceed
cumulative percentage changes in the
MIRS price series (after any adjustments
for methodological changes).
3. Loan Limit Declines—De Minimis and
How Applied
While comments received included
those favoring the de minimis amount
as proposed, many endorsed a larger de
minimis amount to support OFHEO’s
efforts to keep market impact to a
minimum. Some argued that the de
minimis amount should be larger, in
part to reflect the volatility of the price
series obtained from the Federal
Housing Finance Board’s MIRS reports.
The proposed guidance, in light of
comments filed and a reexamination of
the volatility in the MIRS price data,
increases the de minimis amount from
one percent to three percent. Because
the maximum loan limits are based on
12-month changes (October-to-October)
in the MIRS price series, we examined
the history of 12-month changes.
Volatility in that series is markedly
lower after 1993, but still large.
Particularly noteworthy is the frequency
of month-to-month reversals. One
would expect the overlapping series of
12-month changes to be fairly smooth,
but more often than not the 12-month
change ending in any month is not
within the range of 12-month changes
ending in the preceding and succeeding
months. That is, if the average price
increased 3 percent in the 12 months
ending in March, and it increased 8
percent in the 12 months ending in
May, then more likely than not it either
increased less than 3 percent or more
than 8 percent in the 12 months ending
in April.
Over the past 150 months, data for 96
months are outside the range of the
preceding and succeeding months. In 61
cases, the middle month is more than
one percentage point outside the range;
in 35 cases, more than two percentage
points; and in 16 cases, more than three
percentage points. These results present
strong evidence that a 12-month change
of one or even two percent may easily
be reversed the next month, and is
therefore not an adequate justification
for requiring a lowering of the loan
limits. Some of these reversals no doubt
reflect true turning points in house price
behavior, however, most clearly do not.
A reversal of 3 percent seems
sufficiently unusual to assume it likely
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reflects a real change in house price
trends.
Accordingly, OFHEO has revised the
guidance to provide for three percent as
the de minimis amount.
Declines in the loan limit would be
applied as described in section 2 above
and as described in the Appendix to the
revised guidance.
4. Grandfathering Issues
Comments received suggested that
proposed grandfathering of loans that
conformed with the loan limit prior to
a decline in the loan limit to facilitate
operation of mortgage pipelines could
be improved and clarified.
OFHEO determined that clarification
was in order and, in line with comments
received, has revised the guidance to
provide that if a loan has been
conforming at any time, it cannot
become non-conforming by virtue of a
subsequent decline in the loan limit.
Modification of a loan would not change
its origination date or whether it is
within the loan limits.
5. Rounding Down and Other Matters
Comments received regarding a
rounding down to the lowest $100 as
opposed to the current OFHEO practice
of rounding down to the lowest $50
were mixed with some opposing and
others indicating either no objection to
or no opinion on OFHEO’s proposal.
The revised guidance would adopt the
approach of rounding down to the
nearest $100 as having value as to
market and consumer simplicity and
understanding. Also, it would represent
a doubling of this rounding standard, a
much smaller percentage change than
the increase in the loan limits since the
$50 standard was adopted.
Accordingly, as stated in the
Preamble, OFHEO is revising the
Examination Guidance on Conforming
Loan Limit Calculations as follows:
Dated: October 15, 2007.
James B. Lockhart III,
Director, Office of Federal Housing Enterprise
Oversight.
OFHEO
Examination Guidance
Issuance Date: October, 2007
Doc. #: PG–07–001
Subject: Conforming Loan Limit
Calculations
To: OFHEO Examiners
OFHEO Associate Directors.
Table of Contents
I. Introduction
a. Scope
b. Preservation of Existing Authority
II. Calculation of Conforming Loan Limit
a. General Procedures
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b. Procedures for Years in Which Limit
Declines
c. Procedures for Adjustments and
Technical Changes
III. Appendix
References
a. Supervisory Guidance SG–04–001
b. Federal Housing Enterprises Financial
Safety and Soundness Act
c. OFHEO Regulations Safety and
Soundness Standards, 12 CFR part 1720
& Prompt Supervisory Response &
Corrective Act, 12 CFR part 1777
I. Introduction
a. Scope
This guidance addresses the annual
establishment of the conforming loan
limit amount for mortgages purchased
by Fannie Mae and Freddie Mac (‘‘the
Enterprises’’) and OFHEO supervisory
procedures related to such activity. This
guidance replaces Supervisory
Guidance SG–04–01.
(1) OFHEO Supervisory Authority
OFHEO oversees two housing
government sponsored enterprises—
Fannie Mae and Freddie Mac—to assure
they operate in a safe and sound manner
and maintain adequate capital; 12
U.S.C. 4501, 4511, 4513. OFHEO’s
responsibilities include avoiding
situations that would present safety and
soundness problems; 12 CFR part 1720,
Appendices A and B and 12 CFR part
1777. In addressing areas where such
problems could arise, OFHEO has
highlighted corporate governance and
financial disclosures; 12 CFR parts 1730
and 1710. In its regulation on
disclosure, OFHEO noted key areas of
concern-access to markets and potential
damages to the firms from incurring—
reputation risk. Therefore, OFHEO has
set forth this guidance to ensure that the
conforming loan limit is established in
a manner consistent with safe and
sound operations and with statutory
requirements.
For twenty-five years of practice, the
Enterprises announced a conforming
loan limit. However, in seven of those
years adjustments or decisions were
made that raise safety and soundness
concerns about the annual adjustment to
the conforming loan limit. OFHEO
believes that the situation may be
addressed through appropriate
guidance, setting a more regularized
process of oversight and control for this
matter of national significance. That is
the intent of this guidance.
(2) Conforming Loan Limit (CLL)
The Enterprises are authorized by
their charters to purchase mortgages up
to a specified limit as adjusted annually;
12 U.S.C. 302(b)(2) and 305(a)(2). This
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limit is referred to as the conforming
loan limit (CLL).
The Enterprises make this adjustment
based on a survey conducted by the
Federal Housing Finance Board (FHFB).
The FHFB monthly conducts and
publishes the results of a survey of
mortgage interest rates, the Monthly
Interest Rate Survey (MIRS). Under the
Enterprise charters, the change in the
national average one-family house price
during the twelve-month period ending
with the previous October as
determined by the FHFB in its survey is
the basis for changes to the conforming
loan limit. The Enterprises apply the
percentage change to the current year’s
conforming loan limit to establish the
next year’s limit. This number
constitutes part of the determinations of
the eligibility of loans for Enterprise
purchases.
OFHEO as safety and soundness
regulator has responsibility to oversee
safe and sound operations and may act
to redress violations of law by the
Enterprises. In the case of the
conforming loan limits OFHEO
determined in 2004, following a
problem in technical matters relating to
the limits, that a more formalized
process for establishing the conforming
loan limit was needed.
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(3) Background to Conforming Loan
Limit Determinations
Since 1981, the Enterprises have
adjusted the conforming loan limit as
allowed under the Housing and
Community Development Act of 1980.
During this time frame, two types of
occurrences have transpired that raise
the need for a more formal process: (1)
The Enterprises on some occasions
adjusted their loan limits in a manner
that is different from the survey results
and (2) the Federal Housing Finance
Board has made technical changes to its
methodology for determining housing
prices that the Enterprises have not
reflected in their adjustments.
In 2006 and on three prior occasions,
the average house price declined from
October to October (in 1989, 1993, and
1994). In November 1989, the
Enterprises reduced the 1990
conforming loan limit by $150 from the
1989 level based on a house price
decline of 0.07 percent. In November
1993 and November 1994, however, the
Enterprises announced that the
conforming mortgage loan limit would
remain constant at $203,150, despite
two declines in house prices of 2.96
percent in 1993 and 1.46 percent in
1994 from the prior years. After housing
prices increased from October 1994 to
October 1995, the Enterprises raised the
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limit for 1996 without any adjustment
for the previous declines.
Additionally, in November 1997, the
Enterprises took another course, setting
a lower number than the adjustment
produced. They determined that the
1998 conforming loan limit would
increase by only 3.67 percent, even
though the percentage change in house
prices using FHFB data for 1996–1997
was 8.44 percent. The practical effect of
this action was to adjust for the 1993
and 1994 price declines.
There have been three occasions
when the Federal Housing Finance
Board made methodological changes to
the Monthly Mortgage Interest Rate
Survey that required an adjustment to
one or both of the reference years, that
is, the prior or current year’s October
calculation (in 1992, 1998, and 2003). In
December 1992, the Enterprises
determined that the 1993 conforming
loan limit would increase 0.42 percent
based on adjusted FHFB numbers for
October 1991 and October 1992 national
average one-family house price. In
November 1998, the Enterprises
determined that the 1999 conforming
mortgage loan limit would increase by
5.66 percent based on an adjusted
October 1997 house price survey.
Therefore, in 1992 and again in 1998,
the Enterprises used the adjusted
national average one-family house
price(s) provided by the FHFB.
In 2003, however, the Enterprises
adopted a conforming loan limit that
disregarded communications from the
FHFB staff regarding a change in the
methodology for estimating house
prices. The Enterprises determined that
the rise in the 2004 conforming loan
limit would increase by 3.41 percent
based on unadjusted national average
house prices for October 2002 and
October 2003. However, FHFB staff had
indicated that the October 2003 national
average house price should be adjusted
downward by $1,647, a net increase of
2.71 percent.
Due to this inconsistent application of
procedures for price declines and
methodology changes, OFHEO issued a
conforming loan limit guidance in 2004.
To clarify elements of the existing
guidance and to address the concerns
around possible declines in the national
average house price average, OFHEO
announced in late 2006 that it would
issue a new guidance to replace the
2004 issuance.
In 2006, the October national house
price average declined by 0.16 percent
from the previous October, which by the
standard calculation would have
reduced the maximum single family
conforming loan limit from $417,000 to
$416,300. OFHEO had previously
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indicated, however, that the effect of
any decrease in the house price average
would be deferred until the Fall 2007
calculation of the limits for the
following year. OFHEO also stated that
for the 2008 calculation, the decrease of
0.16 percent would be deducted from
any increase in the average house price
in the year ended October 2007 or, if the
average price decreased, the loan limit
would decrease by that amount. Left to
be determined was how a further
decline in 2008, if it occurred, would be
treated and whether any existing loans
would be grandfathered. The purpose of
this guidance, that was subject to public
notice and comment between June 20
and July 19, 2007, is to address these
and related issues.
b. Preservation of Existing Authority
Nothing contained in this guidance
prevents OFHEO from undertaking such
supervisory or enforcement actions as
may be necessary to meet its statutory
obligations to oversee maintenance of
safety and soundness and adequate
capital.
II. Calculation of Conforming Loan
Limit
a. General Procedures
(1) Consistent with statute, OFHEO
will utilize the October MIRS survey
data (routinely released in November) to
calculate the conforming loan limit for
the following calendar year.
(2) Under the terms of an inter-agency
agreement, the FHFB will provide
OFHEO with the confidential October
survey data prior to its public release.
(3) OFHEO will calculate the
percentage change in the average house
price, make any adjustment needed to
reflect FHFB technological changes and
determine the new maximum
conforming loan limit for the following
year. The result of the calculation will
be rounded downward, in line with
existing practice, to the nearest $100, for
marketplace convenience and
administrative simplicity.
(4) Immediately following the FHFB’s
October MIRS announcement, OFHEO
will announce the maximum level of the
new conforming loan limit and
simultaneously issue a letter with its
determination to each Enterprise.
(5) Each Enterprise under its charter
then determines whether to set the
conforming loan limit at its institution
at or below that level.
(6) The purchase of any mortgage
above the limit by Fannie Mae or
Freddie Mac will be considered an
unsafe and unsound practice, running
contrary to statute.
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b. Procedures for Years in Which the
House Price Level Declines
(1) In a year in which the October
house price level is lower than the level
of the previous October, OFHEO will
defer the impact of that decline on the
conforming loan limit for one full year.
[The effect of the price level decline of
0.16 percent from October 2005 to
October 2006 was deferred in this
manner.]
(2) After deferring the impact of a
decline in the average price level for one
year:
(A) If the price level falls in the
following year, the latter decline will be
deferred one year, and the maximum
loan limit will be adjusted by the
decline of the former year;
(B) If the price level increases the
following year, then the prior year’s
decline will be subtracted from such
increase; or
(C) If the procedure in (A) or (B)
would result in a decrease for any year
in the maximum loan limit of less than
three percent, that decrease will be
deferred. In the following year, the
amount deferred will be netted against
any increase, or added to any decrease,
that would otherwise be determined. If
the calculation would result in a
decrease of less than 3 percent, that
decrease also will be deferred until fully
employed to offset future increases or
until the net decrease accumulates to 3
percent or more.
(3) All loans that were within the
conforming loan limit at the time of
origination will continue to be deemed
within the conforming loan limit during
the remaining lives of such loans,
regardless of whether the loan limit for
any subsequent year declines to a level
below the limit at the time of
origination.
c. Procedures for Adjustments and
Technical Changes
(1) At any time during the year after
a calculation has been made and the
conforming loan limit set, if the FHFB
revises the MIRS or any calculation, the
Enterprises may provide comments to
the FHFB for its consideration. Copies
of any Enterprise comments should be
provided contemporaneously to
OFHEO.
(2) Once the FHFB has determined the
nature, scope and timing of technical
changes or adjustments, OFHEO will
make adjustments to the next year’s
conforming loan limit based upon the
procedures set forth in this Guidance.
III. Appendix
The following appendix provides examples
of how a decline in the conforming loan limit
would be implemented.
VerDate Aug<31>2005
15:02 Oct 19, 2007
Jkt 214001
Examples of How Increases and
Declines in House Prices Affect the
Conforming Loan Limit Under OFHEO’s
Examination Guidance
The following examples reflect how
declines and increases would be addressed in
future years under the final Examination
Guidance: Conforming Loan Limit.
Calculations:
In 2006, the conforming loan limit was
$417,000. In 2006, the average house
purchase price declined by 0.16 percent and
this decline was deferred one year until the
next calculation in November 2007 for the
2008 limits. OFHEO determined that declines
always should be deferred a year and that
they should accumulate to a three percent
threshold before being implemented on the
downside.
In November 2007,
(a) If the average house purchase price has
gone up during the year, for example by 2
percent, the deferred decline of 0.16 percent
would be subtracted, and the new loan limit
beginning January 2008 would show an
increase of 1.84 percent.
(b) If the average house purchase price has
gone up during the year, for example by 0.10
percent, then the deferred decline would
offset that 0.10 percent increase and a 0.06
percent% decline would be carried forward.
The conforming loan limit would remain the
same at $417,000.
(c) If the average house purchase price has
gone down, the conforming loan limit will
remain at $417,000 for 2008.
The deferred decline will be added to the
0.16 percent and carried forward until the
next calculation in November 2008, as
follows:
(i) If the average house purchase price goes
up during 2008, the conforming loan limit
will be calculated per (a) or (b) above with
the offset being the cumulative deferred
decline of 0.16 percent and the November
2007 decline;
(ii) If the average house purchase price
goes down during 2008 and the cumulative
deferred decline of 0.16 percent from 2006
and the decline from 2007 still total less than
3 percent, the conforming loan limit would
remain at $417,000 in 2009; or,
(iii) If the average house purchase price
goes down during 2008 and the cumulative
deferred decline of 0.16 percent from 2006
and the decline from 2007 totals 3 percent or
greater, then the conforming loan limit for
2009 will be adjusted downward by the
2006–2007 cumulative deferred decline.
[FR Doc. E7–20743 Filed 10–19–07; 8:45 am]
BILLING CODE 4220–01–P
DEPARTMENT OF THE INTERIOR
Geological Survey
National Cooperative Geologic
Mapping Program (NCGMP) Advisory
Committee
U.S. Geological Survey.
Notice of meeting.
AGENCY:
ACTION:
PO 00000
Frm 00039
Fmt 4703
Sfmt 4703
59549
Pursuant to Public Law 106–
148, the NCGMP Advisory Committee
will meet in Room 1787 of Building 25
at the Federal Center, Denver, CO.
The advisory Committee, composed of
scientists from Federal Agencies, State
Agencies, academic institutions, and
private companies, will advise the
Director of the U.S. Geological Survey
on planning and implementation of the
geologic mapping program.
Topics to be reviewed and discussed
by the Advisory Committee include the:
• Progress of the NCGMP towards
fulfilling the purposes of the National
Geological Mapping Act of 1993
• Updates on the Federal, State, and
educational components of the NCGMP
• Report from the Subcommittee on
an implementation plan for the National
Geological and Geophysical Data
Preservation Program
DATES: November 1–2, 2007
commencing at 8:30 a.m. on November
1 and adjourning by 5 p.m. on
November 2.
FOR FURTHER INFORMATION CONTACT:
Laurel M. Bybell, U.S. Geological
Survey, 908 National Center, Reston,
Virginia 20192 (703) 648–5281.
SUPPLEMENTARY INFORMATION: Meetings
of the National Cooperative Geological
Mapping Program Advisory Committee
are open to the Public.
SUMMARY:
Dated: October 16, 2007.
William H. Werkheiser,
Acting Associate Director for Geology, U.S.
Geological Survey.
[FR Doc. 07–5189 Filed 10–19–07; 8:45 am]
BILLING CODE 4311–AM–M
DEPARTMENT OF THE INTERIOR
Bureau of Land Management
[CO–140–08–1610–DP]
Notice of Public Meeting, Northwest
Colorado Resource Advisory Council
Subcommittees for the Glenwood
Springs and Kremmling Resource
Management Plan Revisions
Bureau of Land Management,
Interior.
ACTION: Notice of Public Meeting.
AGENCY:
SUMMARY: In accordance with the
Federal Land Policy and Management
Act (FLPMA) and the Federal Advisory
Committee Act of 1972 (FACA), the U.S.
Department of the Interior, Bureau of
Land Management (BLM) Northwest
Colorado Resource Advisory Council
(RAC) Subcommittees on the Glenwood
Springs/Kremmling Resource
Management Plan (RMP) Revisions will
meet as indicated below.
E:\FR\FM\22OCN1.SGM
22OCN1
]]>Agencies
[Federal Register Volume 72, Number 203 (Monday, October 22, 2007)]
[Notices]
[Pages 59545-59549]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-20743]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of Federal Housing Enterprise Oversight
Statement on the Conforming Loan Limit for 2008 and Revised Draft
Examination Guidance
AGENCY: Office of Federal Housing Enterprise Oversight, HUD.
ACTION: Notice of availability of statement and request for comments on
Revised Draft Examination Guidance.
-----------------------------------------------------------------------
SUMMARY: The Office of Federal Housing Enterprise Oversight is
publishing today a Statement on the Conforming Loan Limit for 2008 and
issuing for additional public comment a revised version of the Proposed
Examination Guidance, entitled ``Conforming Loan Limit Calculations''
(Policy Guidance). Material in the proposed guidance does not
constitute a regulation.
DATES: Comments on OFHEO's Revised Draft Examination Guidance should be
received by November 21, 2007.
ADDRESSES: Send all comments on OFHEO's Revised Draft Examination
Guidance to: the Office of Federal Housing Enterprise Oversight, Fourth
Floor, 1700 G Street, NW., Washington, DC 20552.
FOR FURTHER INFORMATION CONTACT: If you have any questions regarding
OFHEO's Revised Draft Examination Guidance, you may contact Alfred M.
Pollard, General Counsel, at (202) 414-3800 (not a toll free number).
The telephone number for the Telecommunications Device for the Deaf is:
(800) 877-8339 (TDD Only).
SUPPLEMENTARY INFORMATION: OFHEO's Revised Draft Examination Guidance
is posted on the Internet at https://www.ofheo.gov. This document, as
well as all others mentioned in the preamble can also be accessed on
business days between the hours of 10 a.m. and 3 p.m., at the Office of
Federal Housing Enterprise Oversight, Fourth Floor, 1700 G Street, NW.,
Washington, DC 20552. To make an appointment to inspect documents,
please call the Office of General Counsel at (202) 414-6924.
Comments Invited: You may submit your comments on OFHEO's Revised
Draft Examination Guidance'' by any of the following methods:
U.S. Mail, United Parcel Post, Federal Express, or Other
Mail Service: The mailing address for comments is: Alfred M. Pollard,
General Counsel, Attention: Comments/Revised Draft Examination
Guidance, Office of Federal Housing Enterprise Oversight, Fourth Floor,
1700 G Street, NW., Washington, DC 20552.
Hand Delivery/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments ``Revised Draft
Examination Guidance,'' Office of Federal Housing Enterprise Oversight,
Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The package
should be logged at the Guard Desk, First Floor, on business days
between 9 a.m. and 5 p.m.
E-mail: The e-mail address is: RegComments@OFHEO.gov.
Internet: When accessing documents online at https://
www.ofheo.gov, comments can be sent by clicking the link for November
13, 2007.
Instructions: All submissions of received comments must
include the reference ``Revised Draft Examination Guidance'' in the
subject line of the message. All comments received will be posted
without change to https://www.ofheo.gov and will include any personal
information provided.
I. Statement on the Conforming Loan Limit for 2008
On November 15, 2006, OFHEO announced that any decline in the house
price index used to establish the conforming loan limit would not
result in a decline in that limit for 2007. OFHEO also committed at
that time to providing updated guidance on how future reductions in the
house price index would affect the conforming loan limit.
On June 20, 2007, OFHEO released on its Web site for public comment
a proposed revision to its existing Examination Guidance entitled
``Conforming Loan Limit Calculations'' (the original proposal). Today,
OFHEO is publishing in the Federal Register for public comment a
revised version of that proposed guidance (the revised proposal).
Both the original and revised proposal provide for holding the
conforming loan limit constant, rather than having it decline, should
the relevant house price index decline by a de minimis amount. The $650
decline in the conforming loan limit implied by last year's house price
decline falls within the de minimis range as originally proposed and as
proposed here.
Consistent with this intention of having a de minimis change
exception to potential reductions in the loan limit, OFHEO is today
affirming that the current $417,000 conforming loan limit will not be
reduced in 2008, without regard to any reduction in the relevant house
price index in 2007. Should the relevant house price index show an
[[Page 59546]]
increase in 2007, the conforming loan limit will either remain
unchanged (if the increase is less than or equal to last year's
decline), or increase (if the increase exceeds last year's decline,
then that decline will be netted against this year's increase). In any
event, the current $417,000 conforming loan limit will not decline in
2008.
II. Request for Comment on Revised Examination Guidance, Conforming
Loan Limit Calculations
The Office of Federal Housing Enterprise Oversight is publishing
today for public comment a revised Examination Guidance, entitled
Conforming Loan Limit Calculations. Following comments received on the
original proposal, OFHEO determined to make certain changes and to
provide an opportunity for public comment on the revised proposal.
Among other sections addressing procedures for calculating and
implementing increases and decreases to the conforming loan limit, the
original guidance proposed in its core provisions that decreases be
deferred one year and then only taken when they clear a de minimis
amount. In short, the loan limit decrease that was deferred for 2007
will be deferred an additional year to 2009 if the underlying house
price series declines again this year, as the previously deferred
decrease was less than a de minimis amount (three percent). If the
underlying series increases this year, the decrease will be subtracted
from such increase in determining the maximum loan limits for 2008.
OFHEO provided for public comment on the proposed examination
guidance on OFHEO's Web site on June 20, 2007, and at the end of a
thirty day comment period, some 23 comments from 25 organizations
(representing over 2 million businesses) and individuals were received.
OFHEO has taken these comments into consideration and has made
alterations to the guidance. Central to OFHEO's consideration was
assuring clarity in the process of calculating loan limits, providing
for smooth market operations and affording certainty to those involved
in making and securing mortgages--Fannie Mae and Freddie Mac, mortgage
originators, and homebuyers.
The proposed guidance elaborated on, revised and superseded an
existing guidance--Supervisory Guidance Conforming Loan Limit
Calculations, SG-04-01 (February 20, 2004) that delineated OFHEO's role
in calculating and announcing the conforming loan limit. In 2006, after
a decline in housing price numbers, OFHEO announced that, while the
conforming loan level had decreased, the resulting decline in the limit
would be delayed a year. OFHEO also indicated it would revise and
update the existing guidance and address how the decline would be
implemented.
Background
Calculations for the conforming loan limit establish the maximum
size of loans that Fannie Mae and Freddie Mac may purchase, as provided
in their charters. The conforming loan limit is adjusted annually
through a calculation of year over year changes to the existing level
of home prices based on data from the Federal Housing Finance Board's
Monthly Interest Rate Survey (MIRS).
Congress established the concept of loan size limit on purchases by
Fannie Mae and Freddie Mac as an integral part of the creation of their
``mission.'' Statutory language relating to the conforming loan limit
permits ``adjustments'' to the conforming loan limit based on the
``percentage increase'' of the prior year. The statutes did not address
what would happen in the event that no increase occurred in the home
price figures or the price figures declined. In November 2006, OFHEO
acted to address this gap in the statutes, indicating that a decline or
``negative increase'' had occurred in 2006 and would be taken into
account following a one year deferral. As well, OFHEO committed to a
revision of its existing guidance to address the process and procedures
involved in calculations and how decreases would be implemented.
Because of the importance of Fannie Mae and Freddie Mac and the
conforming loan limit to the mortgage markets and the interest of other
financial institutions, mortgage bankers, builders, realtors and
others, OFHEO solicited public comment on the guidance.
OFHEO sought comment on all aspects of the guidance, noting certain
key provisions. These were (1) addressing whether and how existing
conforming loans should be grandfathered; (2) addressing a number of
procedural matters, including rounding down announced loan limits to
the nearest $100; and (3) providing clarity on declines in the
conforming loan limit. As proposed, the decline would have to represent
a greater than one percent drop in the loan limit (currently $417,000)
or it would be deferred. Once deferrals reached one percent, then the
total decline would be subtracted (one year later) from the conforming
loan limit adjusting for any increase that had occurred. For example,
the one percent threshold and one year lag mean that the earliest the
2006 and 2007 conforming loan limit of $417,000 could be adjusted
downward would be in 2009. That would only occur if prices continued to
decline in 2007 and the cumulative 2006-2007 decline exceeded one
percent, even after netting any 2008 increase.
III. Comments and Changes to the Conforming Loan Limit Guidance
After a full review of comments, OFHEO has undertaken a number of
changes and determined to publish a revised version of the guidance for
additional comment.
1. Loan Limit Declines and Statute
Some comments received agreed with OFHEO's determination while
others disagreed. Most comments in opposition focused on statutory
language relating to adding increases to an existing conforming loan
limit or suggested that as a matter of policy declines should never be
taken but rather be subtracted in years when the loan limit increased.
OFHEO determined that declines fit within the statutory language as
``negative increases.'' In the alternative, where statutory language is
silent, as is the case here, regulators routinely fill gaps in statutes
with rational solutions in line with available statutory intent. Since
loan limit calculations are tied to annual home price surveys,
increases and declines reasonably may be considered in line with that
statutory structure. OFHEO has determined that filling the gap in
statutory language is appropriate and sought to address, in light of
comments, how its proposed guidance would be implemented.
2. Loan Limit Declines--Deferrals
Comments received suggested that a deferral period was preferred.
Most commenters, whether they opposed declines or not, favored an
implementation of declines in the conforming loan limit with as little
market disruption as possible. OFHEO agrees that its implementation
should result in the least impact on both market operations and provide
the greatest certainty for planning in the mortgage markets.
The revised guidance would implement the proposed deferral of one
year. This would permit markets well in advance to know that a decline
may be forthcoming. Further, there will be certainty about the minimum
level for the coming year.
In line with comments received, OFHEO has amended the language to
clarify that no loan limit decreases of less than the de minimis amount
will be required, and that any such amounts
[[Page 59547]]
would be carried forward to the following year's determination.
Decreases would be deferred until they reach a cumulative three percent
or until they are used to offset future increases, so that ultimately
cumulative percentage changes in the maximum loan limits would not
exceed cumulative percentage changes in the MIRS price series (after
any adjustments for methodological changes).
3. Loan Limit Declines--De Minimis and How Applied
While comments received included those favoring the de minimis
amount as proposed, many endorsed a larger de minimis amount to support
OFHEO's efforts to keep market impact to a minimum. Some argued that
the de minimis amount should be larger, in part to reflect the
volatility of the price series obtained from the Federal Housing
Finance Board's MIRS reports.
The proposed guidance, in light of comments filed and a
reexamination of the volatility in the MIRS price data, increases the
de minimis amount from one percent to three percent. Because the
maximum loan limits are based on 12-month changes (October-to-October)
in the MIRS price series, we examined the history of 12-month changes.
Volatility in that series is markedly lower after 1993, but still
large. Particularly noteworthy is the frequency of month-to-month
reversals. One would expect the overlapping series of 12-month changes
to be fairly smooth, but more often than not the 12-month change ending
in any month is not within the range of 12-month changes ending in the
preceding and succeeding months. That is, if the average price
increased 3 percent in the 12 months ending in March, and it increased
8 percent in the 12 months ending in May, then more likely than not it
either increased less than 3 percent or more than 8 percent in the 12
months ending in April.
Over the past 150 months, data for 96 months are outside the range
of the preceding and succeeding months. In 61 cases, the middle month
is more than one percentage point outside the range; in 35 cases, more
than two percentage points; and in 16 cases, more than three percentage
points. These results present strong evidence that a 12-month change of
one or even two percent may easily be reversed the next month, and is
therefore not an adequate justification for requiring a lowering of the
loan limits. Some of these reversals no doubt reflect true turning
points in house price behavior, however, most clearly do not. A
reversal of 3 percent seems sufficiently unusual to assume it likely
reflects a real change in house price trends.
Accordingly, OFHEO has revised the guidance to provide for three
percent as the de minimis amount.
Declines in the loan limit would be applied as described in section
2 above and as described in the Appendix to the revised guidance.
4. Grandfathering Issues
Comments received suggested that proposed grandfathering of loans
that conformed with the loan limit prior to a decline in the loan limit
to facilitate operation of mortgage pipelines could be improved and
clarified.
OFHEO determined that clarification was in order and, in line with
comments received, has revised the guidance to provide that if a loan
has been conforming at any time, it cannot become non-conforming by
virtue of a subsequent decline in the loan limit. Modification of a
loan would not change its origination date or whether it is within the
loan limits.
5. Rounding Down and Other Matters
Comments received regarding a rounding down to the lowest $100 as
opposed to the current OFHEO practice of rounding down to the lowest
$50 were mixed with some opposing and others indicating either no
objection to or no opinion on OFHEO's proposal.
The revised guidance would adopt the approach of rounding down to
the nearest $100 as having value as to market and consumer simplicity
and understanding. Also, it would represent a doubling of this rounding
standard, a much smaller percentage change than the increase in the
loan limits since the $50 standard was adopted.
Accordingly, as stated in the Preamble, OFHEO is revising the
Examination Guidance on Conforming Loan Limit Calculations as follows:
Dated: October 15, 2007.
James B. Lockhart III,
Director, Office of Federal Housing Enterprise Oversight.
OFHEO
Examination Guidance
Issuance Date: October, 2007
Doc. : PG-07-001
Subject: Conforming Loan Limit Calculations
To: OFHEO Examiners
OFHEO Associate Directors.
Table of Contents
I. Introduction
a. Scope
b. Preservation of Existing Authority
II. Calculation of Conforming Loan Limit
a. General Procedures
b. Procedures for Years in Which Limit Declines
c. Procedures for Adjustments and Technical Changes
III. Appendix
References
a. Supervisory Guidance SG-04-001
b. Federal Housing Enterprises Financial Safety and Soundness
Act
c. OFHEO Regulations Safety and Soundness Standards, 12 CFR part
1720 & Prompt Supervisory Response & Corrective Act, 12 CFR part
1777
I. Introduction
a. Scope
This guidance addresses the annual establishment of the conforming
loan limit amount for mortgages purchased by Fannie Mae and Freddie Mac
(``the Enterprises'') and OFHEO supervisory procedures related to such
activity. This guidance replaces Supervisory Guidance SG-04-01.
(1) OFHEO Supervisory Authority
OFHEO oversees two housing government sponsored enterprises--
Fannie Mae and Freddie Mac--to assure they operate in a safe and sound
manner and maintain adequate capital; 12 U.S.C. 4501, 4511, 4513.
OFHEO's responsibilities include avoiding situations that would present
safety and soundness problems; 12 CFR part 1720, Appendices A and B and
12 CFR part 1777. In addressing areas where such problems could arise,
OFHEO has highlighted corporate governance and financial disclosures;
12 CFR parts 1730 and 1710. In its regulation on disclosure, OFHEO
noted key areas of concern-access to markets and potential damages to
the firms from incurring--reputation risk. Therefore, OFHEO has set
forth this guidance to ensure that the conforming loan limit is
established in a manner consistent with safe and sound operations and
with statutory requirements.
For twenty-five years of practice, the Enterprises announced a
conforming loan limit. However, in seven of those years adjustments or
decisions were made that raise safety and soundness concerns about the
annual adjustment to the conforming loan limit. OFHEO believes that the
situation may be addressed through appropriate guidance, setting a more
regularized process of oversight and control for this matter of
national significance. That is the intent of this guidance.
(2) Conforming Loan Limit (CLL)
The Enterprises are authorized by their charters to purchase
mortgages up to a specified limit as adjusted annually; 12 U.S.C.
302(b)(2) and 305(a)(2). This
[[Page 59548]]
limit is referred to as the conforming loan limit (CLL).
The Enterprises make this adjustment based on a survey conducted by
the Federal Housing Finance Board (FHFB). The FHFB monthly conducts and
publishes the results of a survey of mortgage interest rates, the
Monthly Interest Rate Survey (MIRS). Under the Enterprise charters, the
change in the national average one-family house price during the
twelve-month period ending with the previous October as determined by
the FHFB in its survey is the basis for changes to the conforming loan
limit. The Enterprises apply the percentage change to the current
year's conforming loan limit to establish the next year's limit. This
number constitutes part of the determinations of the eligibility of
loans for Enterprise purchases.
OFHEO as safety and soundness regulator has responsibility to
oversee safe and sound operations and may act to redress violations of
law by the Enterprises. In the case of the conforming loan limits OFHEO
determined in 2004, following a problem in technical matters relating
to the limits, that a more formalized process for establishing the
conforming loan limit was needed.
(3) Background to Conforming Loan Limit Determinations
Since 1981, the Enterprises have adjusted the conforming loan limit
as allowed under the Housing and Community Development Act of 1980.
During this time frame, two types of occurrences have transpired that
raise the need for a more formal process: (1) The Enterprises on some
occasions adjusted their loan limits in a manner that is different from
the survey results and (2) the Federal Housing Finance Board has made
technical changes to its methodology for determining housing prices
that the Enterprises have not reflected in their adjustments.
In 2006 and on three prior occasions, the average house price
declined from October to October (in 1989, 1993, and 1994). In November
1989, the Enterprises reduced the 1990 conforming loan limit by $150
from the 1989 level based on a house price decline of 0.07 percent. In
November 1993 and November 1994, however, the Enterprises announced
that the conforming mortgage loan limit would remain constant at
$203,150, despite two declines in house prices of 2.96 percent in 1993
and 1.46 percent in 1994 from the prior years. After housing prices
increased from October 1994 to October 1995, the Enterprises raised the
limit for 1996 without any adjustment for the previous declines.
Additionally, in November 1997, the Enterprises took another
course, setting a lower number than the adjustment produced. They
determined that the 1998 conforming loan limit would increase by only
3.67 percent, even though the percentage change in house prices using
FHFB data for 1996-1997 was 8.44 percent. The practical effect of this
action was to adjust for the 1993 and 1994 price declines.
There have been three occasions when the Federal Housing Finance
Board made methodological changes to the Monthly Mortgage Interest Rate
Survey that required an adjustment to one or both of the reference
years, that is, the prior or current year's October calculation (in
1992, 1998, and 2003). In December 1992, the Enterprises determined
that the 1993 conforming loan limit would increase 0.42 percent based
on adjusted FHFB numbers for October 1991 and October 1992 national
average one-family house price. In November 1998, the Enterprises
determined that the 1999 conforming mortgage loan limit would increase
by 5.66 percent based on an adjusted October 1997 house price survey.
Therefore, in 1992 and again in 1998, the Enterprises used the adjusted
national average one-family house price(s) provided by the FHFB.
In 2003, however, the Enterprises adopted a conforming loan limit
that disregarded communications from the FHFB staff regarding a change
in the methodology for estimating house prices. The Enterprises
determined that the rise in the 2004 conforming loan limit would
increase by 3.41 percent based on unadjusted national average house
prices for October 2002 and October 2003. However, FHFB staff had
indicated that the October 2003 national average house price should be
adjusted downward by $1,647, a net increase of 2.71 percent.
Due to this inconsistent application of procedures for price
declines and methodology changes, OFHEO issued a conforming loan limit
guidance in 2004. To clarify elements of the existing guidance and to
address the concerns around possible declines in the national average
house price average, OFHEO announced in late 2006 that it would issue a
new guidance to replace the 2004 issuance.
In 2006, the October national house price average declined by 0.16
percent from the previous October, which by the standard calculation
would have reduced the maximum single family conforming loan limit from
$417,000 to $416,300. OFHEO had previously indicated, however, that the
effect of any decrease in the house price average would be deferred
until the Fall 2007 calculation of the limits for the following year.
OFHEO also stated that for the 2008 calculation, the decrease of 0.16
percent would be deducted from any increase in the average house price
in the year ended October 2007 or, if the average price decreased, the
loan limit would decrease by that amount. Left to be determined was how
a further decline in 2008, if it occurred, would be treated and whether
any existing loans would be grandfathered. The purpose of this
guidance, that was subject to public notice and comment between June 20
and July 19, 2007, is to address these and related issues.
b. Preservation of Existing Authority
Nothing contained in this guidance prevents OFHEO from undertaking
such supervisory or enforcement actions as may be necessary to meet its
statutory obligations to oversee maintenance of safety and soundness
and adequate capital.
II. Calculation of Conforming Loan Limit
a. General Procedures
(1) Consistent with statute, OFHEO will utilize the October MIRS
survey data (routinely released in November) to calculate the
conforming loan limit for the following calendar year.
(2) Under the terms of an inter-agency agreement, the FHFB will
provide OFHEO with the confidential October survey data prior to its
public release.
(3) OFHEO will calculate the percentage change in the average house
price, make any adjustment needed to reflect FHFB technological changes
and determine the new maximum conforming loan limit for the following
year. The result of the calculation will be rounded downward, in line
with existing practice, to the nearest $100, for marketplace
convenience and administrative simplicity.
(4) Immediately following the FHFB's October MIRS announcement,
OFHEO will announce the maximum level of the new conforming loan limit
and simultaneously issue a letter with its determination to each
Enterprise.
(5) Each Enterprise under its charter then determines whether to
set the conforming loan limit at its institution at or below that
level.
(6) The purchase of any mortgage above the limit by Fannie Mae or
Freddie Mac will be considered an unsafe and unsound practice, running
contrary to statute.
[[Page 59549]]
b. Procedures for Years in Which the House Price Level Declines
(1) In a year in which the October house price level is lower than
the level of the previous October, OFHEO will defer the impact of that
decline on the conforming loan limit for one full year. [The effect of
the price level decline of 0.16 percent from October 2005 to October
2006 was deferred in this manner.]
(2) After deferring the impact of a decline in the average price
level for one year:
(A) If the price level falls in the following year, the latter
decline will be deferred one year, and the maximum loan limit will be
adjusted by the decline of the former year;
(B) If the price level increases the following year, then the prior
year's decline will be subtracted from such increase; or
(C) If the procedure in (A) or (B) would result in a decrease for
any year in the maximum loan limit of less than three percent, that
decrease will be deferred. In the following year, the amount deferred
will be netted against any increase, or added to any decrease, that
would otherwise be determined. If the calculation would result in a
decrease of less than 3 percent, that decrease also will be deferred
until fully employed to offset future increases or until the net
decrease accumulates to 3 percent or more.
(3) All loans that were within the conforming loan limit at the
time of origination will continue to be deemed within the conforming
loan limit during the remaining lives of such loans, regardless of
whether the loan limit for any subsequent year declines to a level
below the limit at the time of origination.
c. Procedures for Adjustments and Technical Changes
(1) At any time during the year after a calculation has been made
and the conforming loan limit set, if the FHFB revises the MIRS or any
calculation, the Enterprises may provide comments to the FHFB for its
consideration. Copies of any Enterprise comments should be provided
contemporaneously to OFHEO.
(2) Once the FHFB has determined the nature, scope and timing of
technical changes or adjustments, OFHEO will make adjustments to the
next year's conforming loan limit based upon the procedures set forth
in this Guidance.
III. Appendix
The following appendix provides examples of how a decline in the
conforming loan limit would be implemented.
Examples of How Increases and Declines in House Prices Affect the
Conforming Loan Limit Under OFHEO's Examination Guidance
The following examples reflect how declines and increases would
be addressed in future years under the final Examination Guidance:
Conforming Loan Limit.
Calculations:
In 2006, the conforming loan limit was $417,000. In 2006, the
average house purchase price declined by 0.16 percent and this
decline was deferred one year until the next calculation in November
2007 for the 2008 limits. OFHEO determined that declines always
should be deferred a year and that they should accumulate to a three
percent threshold before being implemented on the downside.
In November 2007,
(a) If the average house purchase price has gone up during the
year, for example by 2 percent, the deferred decline of 0.16 percent
would be subtracted, and the new loan limit beginning January 2008
would show an increase of 1.84 percent.
(b) If the average house purchase price has gone up during the
year, for example by 0.10 percent, then the deferred decline would
offset that 0.10 percent increase and a 0.06 percent% decline would
be carried forward. The conforming loan limit would remain the same
at $417,000.
(c) If the average house purchase price has gone down, the
conforming loan limit will remain at $417,000 for 2008.
The deferred decline will be added to the 0.16 percent and
carried forward until the next calculation in November 2008, as
follows:
(i) If the average house purchase price goes up during 2008, the
conforming loan limit will be calculated per (a) or (b) above with
the offset being the cumulative deferred decline of 0.16 percent and
the November 2007 decline;
(ii) If the average house purchase price goes down during 2008
and the cumulative deferred decline of 0.16 percent from 2006 and
the decline from 2007 still total less than 3 percent, the
conforming loan limit would remain at $417,000 in 2009; or,
(iii) If the average house purchase price goes down during 2008
and the cumulative deferred decline of 0.16 percent from 2006 and
the decline from 2007 totals 3 percent or greater, then the
conforming loan limit for 2009 will be adjusted downward by the
2006-2007 cumulative deferred decline.
[FR Doc. E7-20743 Filed 10-19-07; 8:45 am]
BILLING CODE 4220-01-P
